NFLX blows away expectations yet again
AInvestTuesday, Jan 23, 2024 4:32 pm ET
3min read
NFLX --

In this afternoon"s Q4 earnings report, streaming giant Netflix (NFLX) recorded an impressive paid net subscriber addition of 13.12 million in Q4, marking a significant 71% year-over-year growth and surpassing estimates of 8.91 million and the Wall Street whisper numbers of 10-11 mln. The company's strong performance was seen across various regions, including a 58% year-over-year increase in EMEA (Europe, Middle East, and Africa) streaming paid net additions, 34% growth in LATAM (Latin America), and 62% growth in APAC (Asia Pacific).

Netflix reported a revenue of $8.83 billion for Q4, exhibiting a 12% year-over-year growth and beating the estimated $8.71 billion. The total streaming paid memberships reached 260.28 million, demonstrating a 13% increase year-over-year and exceeding the estimated 256.11 million. The earnings per share (EPS) for Q4 stood at $2.11, which did fall short of the estimated $2.19. It is worth noting that the Q4 EPS included a non-cash unrealized loss from F/X remeasurement on Euro denominated debt amounting to $239 million.

Operating margin for Q4 improved significantly compared to the previous year, reaching 16.9% from 7%, and surpassing the estimated 14.1%. The operating income for the quarter was $1.5 billion, representing a substantial increase from $550 million in the previous year and surpassing the estimated $1.2 billion. Netflix also reported strong free cash flow (FCF) of $1.58 billion, a significant leap from $332 million in the previous year and surpassing the estimated $1.26 billion.

Netflix achieved impressive growth in 2023, with revenue increasing by 12%, operating margin reaching 21%, and FCF rising to $6.9 billion. The company's revenue exceeded its October forecast by $0.1 billion (2%) due to favorable foreign exchange movements and stronger membership growth. Paid net additions in Q4'23 totaled 13.1 million, representing the largest quarterly growth in the company's history.

The company's ad-supported membership plan saw a 70% quarter-over-quarter increase in Q4'23, with the ads plan now accounting for 40% of all Netflix sign-ups in ad-supported markets. The company plans to retire its Basic plan in some ad-supported countries starting with Canada and the UK in Q2.

In terms of Average Revenue Per User (ARPU), there was a 1% year-over-year increase on both a reported and foreign exchange-neutral basis. This growth was in line with the company's expectations of roughly flat year-over-year, considering the limited price increases in the last 18 months and price reductions in certain countries early in 2023, partially offset by price rises in the US, UK, and France in Q4'23.

Netflix's operating income for Q4'23 was $1.5 billion, marking an increase from $0.5 billion in the previous year. The operating margin improved significantly to 17% compared to 7% in the year-ago quarter. The EPS for Q4'23 was $2.11, outperforming the previous year's $0.12 and surpassing the forecasted $2.15. It is important to note that the EPS included the $239 million non-cash unrealized loss from F/X remeasurement on Euro denominated debt.

Looking forward, Netflix forecasts revenue for Q1 at $9.24 billion, slightly below the estimated $9.28 billion. The company expects an EPS of $4.49 for Q1, higher than the estimated $4.09. The forecasted operating margin for Q1 is set at 26.2%, again outperforming the estimated 24.1%. Netflix anticipates double-digit revenue growth excluding foreign exchange effects in 2024, with an FCF of around $6 billion, matching the estimated $6.03 billion. The company expects its operating margin to be 24% in 2024, higher than the estimated 22.7%.

Moving into 2024, Netflix expects a healthy double-digit revenue growth on a foreign exchange-neutral basis, driven by continued membership growth and improved foreign exchange-neutral ARPU as prices are adjusted. The company's Q1'24 revenue growth forecast of 13% includes a 3 percentage point headwind from foreign exchange on a year-over-year basis, primarily due to the significant depreciation of the Argentine peso against the US dollar. Netflix expects global ARPU to increase year-over-year on a foreign exchange-neutral basis in Q1'24.

Netflix has made progress in its gaming offering, with engagement tripling in the past year. However, games still represent a small and not yet material portion of its overall film and series business. 

Netflix's net cash provided by operating activities in Q4'23 was $1.7 billion, compared to $0.4 billion in the previous year. The company's free cash flow for Q4'23 was $1.6 billion, up significantly from $0.3 billion in the previous year. For the full year 2023, net cash provided by operating activities was $7.3 billion compared to $2.0 billion in 2022, while free cash flow totaled $6.9 billion compared to $1.6 billion in 2022.

Overall, Netflix's strong Q4'23 performance and positive outlook for 2024 reflect the company's ongoing efforts to improve membership growth, pricing strategies, and overall financial performance.

The results were impressive leading to shares breaking above the $500 level in after hours trade. NFLX hit a high of $609 in 2022 and an all-time high of $700 during the pandemic in 2021. These results will have analysts raising price targets and talking about these key levels tomorrow. 

$NFLX(NFLX)

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